Yesterday we left several unanswered questions: who should digitize the world’s books? How do we ensure that authors get paid? What is the future of libraries in the digital age?

U.S. libraries have the potential to lead the digital book revolution. Libraries have a large market, consistent funding sources, and good relationships with private partners. Unfortunately, a lack of funding, a lack of focus, and usual bureaucratic hurdles have given Google the lead. Google certainly isn’t evil, but their market power does reduce the likelihood that public libraries will ever gain the political traction needed to fund this vision.

Before we start assessing the future of e-books and public libraries, let’s set the framework for how authors should get paid and who has the power to provide a digital library for the world.

The E-Book Market

It might be instructive to take a brief look at how Google has inserted itself into the e-book market. There are five major players in delivering e-books to readers:

1. 1. Authors: The vast majority of authors are crucial but in many ways peripheral to the development of e-books. That may change (as it has in journalism) but in the near future, their power is distributed too widely.
2. 2. Publishers: Publishers select authors, preen their works and prepare them for public consumption. Resembling the intransigence of record labels in the music industry, publishers are effectively dragging their feet on e-books by not offering any type of discount that would realistically lure readers away from paper books. Publishers fear that the sharing of e-books and emergence of virtual publishing will cut them out of the value chain.
3. 3. Google: Google has used its deep pockets to rapidly insert itself into the e-books value chain. Google already reaches out directly to authors, so it’s easy to imagine that publishers may lose power and influence.
4. 4. Libraries: Libraries are a widely distributed market and reliable customer, purchasing millions of books every year for their collections. The role of libraries in the digital world is rapidly changing. They may lag behind and slowly adapt to e-books, but taking initiative sooner could them more control over the e-books market than any other player.
5. 5. Bookstores: Bookstores - online and off - have lagged on developing a viable e-book model. E-book sellers are often small web companies with specialized catalogs (see statastic! below). Your corner bookstores should be shaking in their bricks and mortar when it comes to e-books, and finding an e-book at Amazon.com is a confounding experience.

Copyright Issues

Now that we know the players, let’s look at one sticky issue that may be delaying the widespread adoption of e-books. Copyright is fundamentally a commercial problem, not a legal one. Intellectual property protection enables authors and musicians to derive profit from their works. Digital Rights Management (DRM) is absolutely critical to protecting the rights of authors. While many of us are familiar with the shortcomings of DRM in music, it is much better suited to e-books - with some adjustments:

• -Customers who purchase e-books must be given a discount. Of the $20 you pay for a new hardback book, up to half is allocated to shipping, printing, publishing, and marketing costs. When you eliminate those costs by selling it in electronic format, you can charge less (say $12) while increasing publisher and author profits.
• -Customers who purchase e-books should have the right to re-sell those books. Although Apple is having no trouble selling DRM music that cannot be re-sold, music downloads are fundamentally different: music is designed for repetition. Just try reading an e-book as many times as your little sister listens to the latest Justin Timberlake CD.
• -E-books must be sold in sections. Just like being able to buy an MP3 single rather than the full album, e-books must give customers the option to part of a book - especially in non-fiction. For a few cents, customers should be able to buy a single recipe (rather than the cookbook), or city museum guide (rather than the entire country guide).
• -E-books must be rent-able (a.k.a. subscription model or DRM time bombs). This is especially critical for the success of electronic public libraries.

If low-priced e-books are protected by reliable DRM and rent-able for public libraries, copyright protection should cease to be an issue. Why? Because people will have almost no incentive to share e-books and e-libraries would create a reliable profit center for publishers and authors.

The Wal-Mart Library?

Now that we have the commercial fundamentals of our new e-book world established, let’s take a look at how this would impact the players.

Wal-Mart flipped the supplier-buyer relationship upside-down. Because of Wal-Mart’s size and market share, suppliers are hesitant to be dropped from Wal-Mart shelves. This gives Wal-Mart increased power to negotiate supplier prices down (often to a fault). Suppliers make less profit per item, but they bet on making it up on volume.

When Google enters the e-book market, it will do so as the market leader (see statastic! below). This may have been Google’s strategy all along: the network effect. For example, where would you go to auction an item? If you want the most eyes on your item, you will auction it at Ebay where there are the most items for sale. Google’s huge database of digitized books will provide a similar draw for readers, giving Google buyer power over suppliers - in this case publishers. With the promise of massive volumes of e-books being sold on Google Books, Google should be able to negotiate lower e-book prices with publishers.

If libraries across the country were to unite and pool their resources, they could also create a single digital library. The federal government could also negotiate lower e-book prices for its public libraries, just as Congress is considering using the market power of 300 million citizens to negotiate lower prescription drug prices for its Medicare beneficiaries.

There are several advantages to a publicly-funded initiative to digitize the world’s books. Google Books search is proprietary. In other words, if you use Yahoo as your search engine, no Google Book results will show up. In contrast, a U.S. Digital Library would be searchable by anyone. Tomorrow we will explore how a such a nationalized virtual library might be implemented in the Washington DC Public Library system.
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